Question

Should we tax the rich more and give to the poor?

Why should we tax the rich more or why not give examples?

What is the outcome of taxing the rich more or staying the same?

With references please!

Answer 1

The role of state is to redistribute income from rich to poor to remove income inequality which at times leads to soical inequality too.

Now the optimal tax tells us that a tax must make someone better off without making any one worse off. So now the question is whether we tax rich heavily and redistribute the income to poor.

The answer to question depends upon the social welfare function we are taking . Thus if we are putting more weight on vulnerable and marginal people . Then yes we must tax rich heavily and redistribute income to poor.

So we must first look at social welfare function and then decide about whom to tax.

Rich are ones who consumes luxury goods more than poor .So luxury are symbol of richness so they must be taxed heavily . Similarly rich are one who passes bequest to their generation so the wealth must be taxed.

Now tax have interaction effect. Interaction effect means taxes have impact upon the decisions of various actors in economy . For example if we tax income then supplier of labour would take into consideration tax before supplying labour.